Coordination and monetary policy among central banks. The NAFTA Case

Abstract

In this document we demonstrated how the central banks that constitute the NAFTA (Canada, the United States of America and Mexico), coordinate around the leader country with the aim to maintain the stability and proper functioning of financial markets. For that, we estimated a VAR model to show the interdependence among interest rates related to monetary policy. According to the obtained results, we found evidence that interest rates from Canada and Mexico are determined to a greater extent by the US Federal monetary policy decisions and to a lesser degree by internal conditions of each economy. We confirmed that the interdependence among the NAFTA countries occurs through the leading economy.